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An education in self-cert benefits

According to the latest data from the Office of National Statistics (Labour Market Analysis and Summary, November 2006) there are now four million self-employed people who account for 13 per cent of the total workforce. In addition, around one million people have a second job.

This suggests that more and more people are adopting flexible attitudes to work. They choose to become their own boss, take on short-term contracts or use secondary employment to supplement their income.

Add on the number of people who rely on bonuses and commission to bulk up their salaries and it is clear that the potential self-cert market is bigger and more mainstream than ever before.

However, recent research carried out on behalf of Bradford & Bingley by YouGov in April showed that there is a significant gap in the knowledge of potential self-cert customers when it comes to looking for a mortgage.

Around 2,000 people from all over the UK were surveyed – both employed and self-employed – and 47 per cent of the self-employed people surveyed did not know that self-cert mortgages existed. A further 24 per cent had heard of them but did not know how they worked.

Given that 44 per cent had used intermediaries to source their current mortgage, it is evident that consumers and brokers alike need more information on what is a legitimate and useful specialist product.

Over the years, there have been well-publicised misgivings over self-cert and the fact that it relies on the borrower to declare their income honestly. It is worth noting that lenders in this market are committed to responsible lending and have robust credit search and customer verification mechanisms in place on top of reserving the right to check incomes which look unrealistic. But the truth is that it meets a real – and growing – consumer need.

Many people choosing to work for themselves or who stand outside the conventional system for remuneration (that is, standard, predictable monthly pay, no seasonal fluctuations or other earnings) have struggled in the past to get a mortgage and have had to pay well above mainstream rates because of a perceived greater risk in taking on this kind of business.

But as self-cert has become more widely available and has established a healthy track record when it comes to risk assessment, the market has loosened up, with lenders focusing on consumer need as well as their own concerns over the quality of their book.

The result is that product development has improved and consumers are now able to choose from a broad range of reasonably priced deals with simple criteria.

This does not mean, however, that lenders can afford to drop their guard. The FSA has repeatedly stated that, although it does not have any major concerns over the way the industry is operating at the moment, it considers self-certification to be an area where the risk of failure is relatively high. Following its mystery shopper exercises over the last couple of years, it has urged those involved in manufacturing and selling these mortgages to remain vigilant.

As the market grows, so does the need for lenders and intermediaries to be able to effectively differentiate between genuine self-certification customers and those seeking to fraudulently inflate their income.

Lenders are becoming increasingly sophisticated in the way they process and underwrite mortgages and self-cert has benefited from many of these improvements. Those of us who have been in the market from the beginning now have an enormous amount of experience on which to draw and we are using this to enhance the way we manage risk.

These improvements and the market’s commitment to ensuring that self-cert mortgages are being developed for and sold to the right kind of consumer have led to numerous product enhancements.

What we need to do now is educate the self-employed and their financial advisers on the real benefits of self-cert and how it can work for them.

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